Paris, 14 July 2023
The European Banking Authority (EBA) today published its Q1 2023 quarterly Risk Dashboard (RDB). The publication presents the results of the EBA’s latest risk assessment questionnaire (RAQ), which was conducted among 85 banks in spring this year. It also includes information on minimum requirement for own funds and eligible liabilities (MREL). Banks’ profitability continued to increase, and their capital, funding and liquidity ratios remain strong. Bank debt issuance has resumed after a temporary halt due to the Silicon Valley Bank (SVB) and Credit Suisse (CS) induced turmoil. A downward trend in liquidity and funding ratios is expected due to repayments of the ECB’s targeted longer-term refinancing operations (TLTRO).
- The uncertain economic outlook has resulted in lower consumer and business confidence as well as reduced risk appetite among banks. More banks expect asset quality deterioration going forward.
- To deal with the uncertain outlook, many banks have already provision overlays in place. The share of overlays in total expected credit losses is 20% and higher for around 40% of the banks, according to the RAQ.
- Higher interest rates helped increase banks’ profitability with average return on equity (RoE) reaching 10.4%. Going forward, net interest income might decline due to repricing of deposits.
- EU/EEA banks’ capital ratios continued to increase. The fully loaded common equity tier 1 (CET1) ratio reached 15.7% in Q1 2023, a 30bps increase over the quarter.
- The liquidity coverage ratio (LCR) declined from 164.6% in Q4 2022 to 163.7% in Q1 2023. The net stable funding ratio (NSFR) rose from 125.6% to 126%.
- The EBA MREL information shows that the overall MREL shortfall is EUR 29.1bn, corresponding to 1.2% of required issuance. Resolution authorities are carefully monitoring the situation and are in some instances granting longer transition periods to individual banks.
- EBA EuReCa data shows that EU competent authorities reported nearly 500 serious deficiencies, or ‘material weaknesses’ related to ML/FT between 31 January 2022 and 31 May 2023.
Source – EBA